Smart Money: Expert Tips on How to Maximize RESPs

For young adults pursuing a university education today, costs can be prohibitive—up to $100,000 for four years of undergraduate study and anywhere from $30,000 to $100,000 more for advanced degrees. Enter RESPs: the perfect savings vehicle. Even better, you don’t have to be the parent to contribute. Any family member, including aunts, uncles and grandparents can contribute to a child’s RESP. There are some caveats though.

There are three types of RESPs: individual plans, family plans and group plans. Of the three, group RESPs—typically called scholarship trusts—aren’t a good choice for most families because they typically have high fees, pre-set contributions, more restrictions, and no entitlement to investment income if the plan is cancelled.

One of the great things about RESP are the top-ups through government benefits like the Canada Education Savings Grant (CESG). They can add up quickly, which is one of the main benefits of an RESP.

“Nowhere else can you get the 20 percent return on your money like you can with an RESP,” says certified financial planner and money coach Annie Kvick. To maximize the basic CESG, you need to put $2,500 into your child’s RESP annually. If you don’t max out your annual CESG, the eligibility room carries forward, but $1,000 is the maximum grant you can receive in any one year. There is no annual limit on what you can contribute each year but there is a maximum lifetime contribution of $50,000 per child. “That means if you don’t have the money to start contributing right away, you can catch up when the child is older by putting in more money later.”

If you are in a lower-income bracket and unable to contribute much, it’s still worth it to open an RESP. Doing so makes your child eligible for the Canada Learning Bond (CLB)—a government grant to help lower-income families save for their child’s post-secondary education. Qualifying for the grant provides your child with access to $500 at birth and an additional $25 to cover the costs of opening an RESP. Based on your income tax return, an additional $100 will be deposited annually in the RESP until your child turns 15. This can add up to more than $2,000 in grants. “This is free money for your child and every low-income family should claim it,” says Kvick.

Instead of setting up a scholarship trust, which comes with more stringent regulations, Kvick recommends opening a self-directed RESP at your financial institution. “Then set up an automatic monthly deposit to your RESP,” says Kvick. Ideally, you should aim to max out the grant every year, she adds.

Remember to keep investing simple. A low-cost mutual fund or ETF is all you need to get good, stable returns. “Once the money is in a self-directed RESP, you can invest the way you like and have the flexibility to make contributions when you want,” says Kvick. Investments in a self-directed RESP keeps fees low, helping to boost total returns that are enhanced thanks to the government grant programs.

Julie is senior editor and writer at Moneysense magazine. An award-winning business journalist, she has written for Macleans's, Chatelaine, Canadian Business and many other leading publications. Her mission is to empower women to be proactive about money.

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